In the 1970s public sector MFL did pioneering work in popularising complex fertilizers. It was so profitable!
The American International Oil Company (AMOCO) that partnered Government of India and the National Iranian Oil Company, set up in quick time this large fertilizer unit. The complex fertilizer granules soon became popular and, for a few years, MFL was highly profitable with a dividend rate of even 50 per cent!
The Americans in-charge of marketing used to invite media men to explain the unique qualities. We were sceptical about these marketers communicating with villagers, many of them illiterate and had no knowledge of English. It was amazing to observe the ability of these marketing wizards: they used to explain the benefits through simple drawings. The ‘bommai’ image of a farmer, later christened ‘Vijay,’ was effective!
The marketing effort started during the construction stage in the late 1960s, well ahead of the commencement of production, by an extensive programme of seeding the market with imported complex fertilizers. When production commenced, the market was ready to absorb fully the large addition to availability! The N:P:K fertilizers took care of balanced use of fertilizers. MFL had done pioneering work in this and its products gained immense popularity.
When production of complex fertilizers stopped…
The subsidy policy for fertilizers skewed development: for decades hefty subsidies have been provided by the government for all fertilizers but later withdrawn for complex fertilizers. Imagine the impact on the costs of complex fertilizers: when MFL commenced production, naphtha prices ruled around a few hundred rupees a tonne. Today it is in the region of Rs 35,000 per tonne. Likewise, price of phosphoric acid, dependent on imported rock phosphate and of potash zoomed. There was a further setback when the considerable money spent on expanding production capacity of MFL in the late 1990s did not yield the desired results due to faulty designs by the Fertilizer Engineering & Design Organization. These cumulatively rendered MFL sick. The precious facilities for complex fertilizers were rendered idle, and ad hoc arrangements had been made to keep it alive. MFL turned into the production of urea to avail the benefit of subsidies.
During 2009-13 the company earned profits thanks to such support. Even this support was not sustained. During 2013-14 production was stopped for 100 days. Apart from the Central subsidy the state government also provided an exemption from the VAT. Still, the capital had been eroded entirely and has been negative at Rs 492.03 crore as at the end of March 2018.
When fertilizer production shifted from south
The change in the feedstock policy to natural gas in the late 1980s shifted production to west and north India. The southern plants that continued to be based on naphtha were rendered sick.
Today there are two exciting and welcome developments: the first is the large capacity facility at Ennore for importing natural gas being built by Indian Oil. This is designed to supply 5 million tonnes of CNG per annum. The pipeline to convey gas to MFL is being laid.
A close rapport with the state government
Another exciting development I noticed was the company, headed by U Saravanan, endeavouring to maintain close relations with the state government. I have been pointing to the lack of focus on such ties by Central PSUs. An immediate benefit of such rapport: MFL getting approval for its revival plans quickly; part of this was the clearance for selling 70 acres of MFL’s surplus land to the adjoining refineries of CPCL. This is expected to get a revenue of around
Rs 500 crore that would go a long way in reducing the debt burden.
Saravanan pointed to the expansion of ammonia production, made a couple of decades ago, now operating to full capacity. The company plans to construct a captive power plant based on gas. This is expected to improve profitability further. With gas available, Saravanan referred to reviving two of the three production lines of complex fertilizers. This will give the prospects for adding five lakh tonnes of NPK fertilizers; along with the five lakh tonnes of urea facility presently produced, MFL can work towards selling 10 lakh tonnes of fertilizers. The availability of gas will thus help MFL regain its past glory days of profits. Using the clean fuel of gas would also be environment-friendly apart from bringing energy costs down.
So there is hope on MFL returning to its halcyon days of the 1970s.
